If Online Marketing Is the Future, Why Are Some CMOs Stuck in the Past?

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Americans spend an average of 14 hours a week online and 14 hours watching TV. But marketers spend 22% of their advertising dollars on TV and only 6% online, according to data compiled and analyzed by Google.

“Of all the advertising platforms, the Internet is one of the few on an upward trend,” says Wharton marketing professor Patti Williams. “But if you look in terms of the sheer amount of time most consumers are spending online and the amount of dollars being spent to reach them, it is still probably way under what it should be.”

Indeed, as computer screens, mobile phones and other devices offer what amounts to billboard space for display ads, video and tie-ins to Internet searches, the advertising landscape is undergoing a major transformation. New media is growing at a fast pace, but industry analysts and Wharton faculty say senior marketers still lag in adopting the Internet and other digital technology to reach their customers.

Spending on Internet marketing is expected to grow 13.4% in 2008, but that will only add up to 7.2% of the total amount spent on all U.S. advertising, which is expected to hit $153.7 billion, according to TNS Media Intelligence.

Williams says that while the Internet provides advertisers with the ability to closely track consumer response to ads by measuring clicks or other online behavior, their reluctance to embrace the Internet may be due to uncertainty about how well it can shape broader brand messages.

“It’s not clear how Crest should leverage search advertising,” says Williams. “How many people are going online to search for toothpaste? It’s not [obvious that] a little ad on the screen is going to attract them. For the biggest bulk of media spending, online is just hard to figure out. The Internet is not that good at big brand building objectives, so there are a lot of companies struggling with a way to take advantage of the tremendous opportunity Google and other searches offer.”

It Takes a Village

According to Wharton marketing professor David Reibstein, another obstacle to moving advertising online is the difficulty of reaching a broad audience with an efficient media buying operation. When three television networks dominated the advertising world, it was easy for mass advertisers and their agencies to place commercial messages. Now, they are confronted with a complex web of options, including the Internet, which itself is highly fragmented, in-store promotions, social networking and mobile phone technology as well as traditional media.

“Each one of the pieces is effective, but that effectiveness is overwhelmed by management of the pieces,” says Reibstein, adding that many small start-up companies are going into business to help advertisers reach specific markets online, but that may only stymie advertisers more. An advertiser’s response to these companies and their promising technology “is likely to be, ‘Great, but I would have to deal with 10,000 of you. I would need a manager to manage this interface and that becomes an overwhelming task.’ To some degree, the beauty of the new technology is its narrow, focused audiences,” Reibstein notes. “The downside is that it takes a village of these before we can have an impact.”

According to Wharton marketing professor Peter Fader, the possibility of a recession may further retard advertising’s move online. In an economic slump, he says, marketers should move spending toward Internet platforms because they are more targeted and customer-centric, with easily measured results. “Here’s the irony,” he notes. “When bad times come, people say, ‘We can’t abandon the brand. We can do those customer-centric things next year.’ The CMO will stay with the skills and responsibilities that he has traditionally relied upon.”

Donovan Neale-May, executive director of the CMO Council, a marketing executive trade group, says some of the lag in acceptance of digital advertising is due to advertisers’ long-term relationships with ad agencies, which focus on creative, brand-building messages, and with traditional media companies. “The media itself has yet to evolve their offerings,” he says. “What’s going on today with the big media companies is they are all scrambling to figure out their strategy for what advertisers want.”

Differences in attitudes toward advertising online exist, depending on the specific company or industry sector, Neale-May adds. Not surprisingly, new companies — those without a legacy of traditional advertising — and web-based businesses are embracing digital technologies faster than other firms. “The larger global companies are works in progress. In many cases, institutionalized cultures, agency relationships and media relationships are still limiting them.”

Gopi Kallayil, who leads Google’s AdSense marketing team, which works with Internet publishers, says CMOs now have a tremendous opportunity to communicate with and influence audiences by leveraging Internet marketing.

“The Internet gives advertisers the opportunity to build mind share more effectively by targeting the right context at the right time, ensuring their messages are relevant to the people they are trying to reach,” Kallayil says. “Advertising networks have proven very effective in building brand awareness and generating demand. In addition, the Internet gives marketers more precise, measurable accountability for their ad spending than do traditional media. Demand fulfillment has never been more accurately measured.”

Large and small companies are able to use new media to engage in what Kallayil calls “mass micro marketing.” Marketers can use the Internet to target specific, well-defined audience segments, yet reach a large audience scaling across many markets. By using the Google network, Kallayil contends, advertisers could reach 80% of the estimated billion people around the world who use the Internet.

Solid Data and Gut Feel

According to Chris Moloney, CMO of Scottrade, an Internet brokerage firm, senior marketers need a better understanding of how relationships between offline and online advertising work. For example, he says, a company might run a television ad geared toward brand building that encourages a viewer to visit the company’s web site. “It’s hard to tell if TV or the Internet was the driver,” he says. “The Internet gets credit for activity that might come from watching CNN. In some ways, the Internet causes TV to look less impactful, but in order to continue to do a mixture of both, you need to use a combination of very solid measurements and total gut feel.”

And while advertisers are getting better at quantifying the payback for their investment, advertising remains as much art as science: About 75% of Internet advertising spending can be reliably tracked while the figure for television is closer to 25%. “That averages out to 50%, but it’s getting better,” says Moloney. Television is definitely losing appeal to marketers particularly with the medium’s current rate structure. “There’s a [sense] of arrogance in the TV world — [an attitude] that their product deserves a premium price when, in fact, you can get a more measurable return on the Internet. That’s going to make the road ahead for TV very hard.”

Despite declining circulation, newspapers are still a good advertising buy because their demographics are strong with well-educated, high-income readers, Moloney states. “Newspapers deliver good results. While it is a smaller audience than in the past, it is very focused and has very attractive demographics. We get good results from newspapers.”

At the moment, he says, the industry is focusing heavily on Internet search advertising offered at major sites such as Google and Yahoo. Indeed, potential advertising revenue is a motivation behind Microsoft’s $44.6 billion bid to acquire Yahoo.

Mobile and wireless devices are also beginning to have a place in the market, adds Moloney, but many remain cumbersome. He cites the Apple iPhone as one device that has “leapfrogged” other devices in accessibility. “The opportunities with the iPhone are endless because it is a flexible software platform.” Apple software, he notes, allows the creation of small applications, or “widgets,” for weather or stock information that can become prime advertising vehicles because they are targeted, but not bothersome.

“Many people think of Internet advertising as an intrusive, interruptive experience with dancing aliens jumping across the screen and perpetual pop-up windows,” Moloney says, adding that Scottrade favors ads that provide information that is meaningful to customers, such as a real-time stock chart it offers through an ad on Yahoo. “The opportunities on the Internet are in providing relevant content that is not intrusive personally,” he says, warning Internet marketers not to target customers too closely even though current technology allows them to do so. “Never overwhelm the customer with a feeling that you know too much.” For example, if a company notices a person is researching college loan packages, it would be off-putting if the firm then approached the customer with loan information over the Internet using the name of that person’s high school-aged son or daughter.

Kallayil says marketers these days are using the Internet to generate awareness, educate customers and complete sales. There are several points of touch with their audience — when they are searching online, when they are researching and pursuing passions, and when they are spending time online engaged in other activities, such as social networking or watching videos. “In this new age of real-time advertising, it’s not about eyeballs,” he notes. “Marketers now have a tremendous amount of transparency and control. They know where their ads run and what their audience was doing at the moment when their ads were viewed.”

For example, he says, an advertiser for yoga vacations can display ads when the customer is searching for yoga vacations, reading an article about yoga vacations, browsing a web site on holistic health or watching an online video on stress reduction.

CMOs now have more creative options online beyond text ads, including image, video and interactive ads, Kallayil says. “The kind of richness of ads that is possible on television is now increasingly becoming possible and available [online], while a few years ago it was restricted mostly to text.”

Best Time to Fertilize Crops

The Internet is only part of an evolving digital landscape. In addition to search and display advertising, marketers are also using the Internet and other techniques to generate word-of-mouth or “buzz” marketing, says Neale-May.

One new idea he points to is digital printing. Companies can produce mailers, or any other literature, from a central computer, then use printers in different countries to produce exactly the number of mailers needed — tailoring them to whatever regulatory or cultural restrictions exist. The companies thereby save time and money on warehousing and shipping costs. Another new technique is using text messaging to help customers. For example, a fertilizer company in Europe can send text messages to farmers about the best time to fertilize crops and pharmaceutical companies can text patients when it is time to update prescriptions, says Neale-May.

Moloney estimates that about half the CMOs he knows are extremely knowledgeable about the Internet and prepared to take advantage of what it can offer over traditional media. “It’s going to be impossible for a CMO in the next three to five years to do their job effectively and not understand Internet metrics very well. The Internet has influenced the way we look at television. It has impacted the way we look at all advertising.”

Part of CMOs’ lag in moving advertising to the Internet may be generational, Fader adds. “It takes time to get up the organizational chart and they were raised on skills that are different. As time goes by they will take on the customer-centric mindset and skills, but it’s not happening real fast.”

He also says there are cultural reasons for delays in adding digital technology to the marketing mix. CMOs tend to give more visibility to staff focused on branding and creative work while those assigned to customer-centric, data-based work are viewed as “analytical geeks,” says Fader.

Some of the lag may also be due to the nature of the CMO job itself, he adds. “When you think about it, the CMO is a relatively new position that didn’t exist 10 years ago. The jury is still out on whether it is a C-level position that contributes to the firm the way other C-level positions do.” There are many unrelated jobs that tend to fall under the CMO’s authority — from marketing to brand building to sales — which creates tension in the marketing ranks that may lead to the delay in moving to digital technology, he says. “What makes you a good, warm and fuzzy creative team is very different from what makes you a good sales manager and what makes you good at interactive marketing.”

Too often, Fader notes, CMOs delegate their web-oriented customer-tracking initiatives. He has a set of test questions about customers that he often asks marketing executives, “such as, ‘What is the distribution of repeat purchases across your customer base?’ or, ‘Of all the new customers you acquire this year, what percent will be with you a year later?’ Many proudly reply that they have systems in place and can get the answer in a few moments. That’s not good enough, says Fader. “You need to know it. If a CMO does not have a good sense of this, all the talk about customer centricity is just lip service.”

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